ULIP for Retirement Planning: Combining Investment & Insurance 23August
Markets 23 August, 2025

ULIP for Retirement Planning: Combining Investment & Insurance

ULIPs are insurance cum investment plans which allow you to invest to meet your long-term financial commitments, along with providing life insurance coverage. In case of a sudden demise of the policyholder, the beneficiaries will receive the death benefit or the fund value, whichever is higher. In case the policyholder survives the policy, the policyholder will receive the fund value that would have been accumulated, depending on the fund's performance. 

ULIPs are preferred amongst senior citizens as they offer insurance with investments. This means they receive the benefit of wealth preservation along with growth, while being allowed to switch between the funds depending on their risk appetite. Additionally, the tax benefits along with financial security make ULIPs the most preferred choice amongst senior citizens, which offers them security with stability.

How Does ULIP Work for Senior Citizens?

ULIP is a type of life insurance plan which offers dual benefits of insurance & investments, where a portion is invested in the funds opted for, & the rest is allocated towards life insurance coverage. Let us know how ULIP works:

Step 1: The premiums paid by the policyholders towards the plan are combined by the insurance company to invest them in market-linked investments.

Step 2: Depending on the risk appetite level, a policyholder can choose between debt, equity, or balanced funds.

Step 3: Once the funds are invested, the accumulated funds, i.e., the corpus, are distributed in units having their respective face value. Here, the value of such a unit is known as Net Asset Value (NAV), which changes with market fluctuations.

Step 4: The respective number of units is added to the plan with the corresponding payment towards the premium.

Step 5: This plan comes with a lock-in period of 5 years, which means partial funds can be withdrawn once the lock-in period is over or at the time of maturity.

Step 6: In the above case, the corresponding number of units is sold at the prevailing NAV.

Step 7: In case of the policyholder’s sudden demise, their nominees will receive 105% of the premium amount or the accumulated value of funds, whichever is higher.

ULIP as a Tool for Retirement Planning

Let us know the reasons for considering ULIP as a tool for retirement planning:

  • Power of Compounding

One should start considering retirement planning as soon as they begin to earn. Therefore, if ULIPs are planned early, they should be left for a longer tenure to get compounding benefits, resulting in higher returns. A ULIP Return Calculator can be used to assess the growth of investments over the years.

  • Long-term Investing

When funds are invested in long-term securities, it is advised to remain invested for a longer duration to maximise returns & rule out the impact of market fluctuations. Though a ULIP comes with a lock-in period of 5 years, the insurance company offers coverage for up to 75 years of age. 

  • Loyalty Additions

ULIP offers loyalty additions of 0.20% if you remain invested for a period of more than 11 years, serving as an incentive for maintaining a longer tenure.

  • Risk-based Investing

Under ULIPs, the funds are invested as per your risk appetite, which includes three types. Debt funds are meant for low-risk investments, equity funds are meant for high-risk investments, & hybrid funds are meant for medium-risk investments. 

  • Fund Switching

This plan allows switching between the funds according to the risk tolerance level & market fluctuations. If the funds can be invested in high-risk investment plans, when invested at an early stage. The allocation of funds can be adjusted as you approach retirement age. Alternatively, you can also opt for balanced funds.

  • Tax* Benefits

The premium paid towards ULIP is eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. The maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961 if the total premium amount is under INR 2.5 lakhs. If the total premium exceeds INR 2.5 lakhs, the maturity proceeds will be taxable under the head capital gains.  

How to Select the Best ULIP in India?

Provided below are the steps to select the Best ULIP Plans :

  • Your long-term financial objectives & investment options should be well aligned with the ULIP opted for.

  • Analyse the long-term financial requirements of the plan to be opted for & then choose a ULIP that best suits your requirements.

  • Compare the features & benefits of the available ULIP plans.

  • Select the equity, dent, or hybrid plans depending on the investment options after properly evaluating the flexibility of policy tenure.

  • Check out the different charges applicable, such as initial charges, fund management fees, premium allocation fees, etc.

  • Check out the past performance of the last 3-4 years of the ULIP plan chosen.

  • Confirm that the solvency ratio of the insurance company chosen should be not less than 1.5, as it indicates financial stability.

  • To make informed investment decisions, evaluate the long-term performance of the ULIP plans.

  • Consider that ULIP plans that provide strategic investment horizons well aligned with the financial goals.

Role of ULIPs in Retirement Planning

  • Dual Benefits

ULIP has its dual benefits of insurance with investment, which allows wealth growth &financial security for family members.

  • Fund Options

It offers many fund options, such as equity for high growth &debt for stability, which fulfil all types of risk tolerances.

  • Life Cover

It provides life coverage to the policyholder’s nominees in case of the sudden demise of the policyholder, hence providing financial support to the family.

  • Flexibility

It provides flexibility to adjust between the funds, allowing you to switch your investments as per the market conditions &your risk tolerance level.

  • Transparency

The fees &charges are clearly disclosed, which helps in making informed decisions.

  • Tax Benefits

Get a tax deduction on the amount of premium paid u/s 80C, &the amount of proceeds to be received on maturity is exempt from tax u/s 10(10D). 

  • Partial Withdrawal

Get your funds withdrawn partially from your fund value after the lock-in period is completed to meet emergency situations.

Conclusion

The above-mentioned factors make ULIP a perfect choice for retirement, & senior citizens can also continue making investments towards ULIP post their retirement. It is advised to consider low-risk debt funds to continue the growth of their wealth.  Under this plan, the funds are invested in multiple securities, such as stocks, bonds, or both, the ratio of which depends on the financial objective & risk appetite of the policyholder.